The reports about the fake projects come from Adam Lashinsky's book Inside Apple in which he expounds the intense culture of secrecy at Apple. While touring in support of the book, he described "dummy projects" that engineers work on. What he meant is that many engineers work on very small facets of projects when they don't know about the bigger picture. But since everyone is dying to tell stories about Apple's paranoid cult of secrecy, that's how the statement was interpreted.

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The truth Ars points out, while still paranoid is infinitely boring and legal. You don't need fake projects when you've got non-disclosure agreements:

I don't really see the need for that kind of stuff because everything is NDAed [governed by a nondisclosure agreement] out the ass," one current employee told me. "You can be hired for a position where they don't tell you what you're working on beforehand, sure, but if they're choosing to hire you with your skill set, you might be able to hazard a guess on what it's about. It's a lot easier to have someone sign an NDA and then fire them if they violate it.

Why would Apple burn cash on fruitless projects to protect secrecy, when there is a standard legal practice designed to protect this secrecy? So much for the mythology. [Ars Technica]